The Dynamics of European Inflation Expectations

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract. We investigate the relevance of the Carroll's sticky information model of inflation expectations for four major European economies (France, Germany, Italy and the United Kingdom). Using survey data on household and expert inflation expectations we argue that the model adequately captures the dynamics of household inflation expectations. We estimate two alternative parametrizations of the sticky information model which differ in the stationarity assumptions about the underlying series. Our baseline stationary estimation suggests that the average frequency of information updating for the European households is roughly once in 18 months. The vector error-correction model implies households update information about once a year. Terms of use: Documents in THE DYNAMICS OF EUROPEAN INFLATION EXPECTATIONS

Consumer Attitudes and the Epidemiology of Inflation Expectations

“…Subsequently, a number of contributions have studied the expectations-formation process in more detail. With regard to the updating frequency, Doepke, Dovern, Fritsche, and Slacalek (2008) apply Carroll's framework to European data, and report a somewhat lower updating frequency of around 18 months. Using the Michigan Consumer Survey microdata, Dräger and Lamla (2012) provide evidence that quantitative in ‡ation expectations are adjusted rel-atively frequently, whereas the qualitative assessment (whether prices in general will go up, down or stay where they are now) changes less often.…”

Updating Inflation Expectations

“…Specifically, our study provides evidence of staggered updating of inflation expectations of households for Europe. In contrast to Döpke et al (2008), however, our econometric framework allows us to trace the stickiness of expectations at every moment in time. This is realized via a Bayesian state-space model featuring time-varying parameters and variances.…”

“…Looking at the movements of forecast errors in relation to the variable being forecasted Coibion and Gorodnichenko (2008) and Coibion (2010) document pervasive and robust evidence consistent with information rigidities. For Europe Döpke et al (2008) show that consumers update their inflation expectations once every 18 months. In sum these studies provide evidence for staggered updating and for information frictions.…”

Inflation expectations of experts and ECB communication

“…The theoretical model states that the difference between inflation expectations and realised inflation is determined by an autoregressive part and a part that can be described as For the autoregressive part, we assume that we can approximate expectations for inflation five months ahead by using inflation expectations formed one period before, π t+5|t ≈ π t+5|t−1 (see Döpke et al 2005). In addition to this, we estimate the unrestricted model where the coefficient of the lagged endogenous variable is not bound to be one.…”